Assessments on Climate Change Mitigation Financing and a Financing Strategy for Manufacturing Industry 

“Accelerating Industry’s Climate Response in Sri Lanka” was a five-year project funded by the European Union under the Global Climate Change Alliance Plus (GCCA+) initiative. Its objective was to contribute to climate change mitigation by supporting the implementation of Sri Lanka’s Nationally Determined Contribution (NDC) for the industrial sector. More specifically, the project objective was to scale up the climate change response of Sri Lanka’s industrial sector through the design and implementation of technical, policy, regulatory, and financial tools and mechanisms to accelerate the deployment of renewable energy, energy and resource efficiency technologies, and best practices. The project consisted of five expected outputs. Pilot technologies and methodologies leading to improved energy efficiency and reduction in GHG emissions were tested with the aim of replication. The scope of work for which Econoler was contracted had three main components: 1) An assessment of the landscape for financing climate change mitigation actions in Sri Lankan manufacturing industries; 2) the development of a financing strategy and risk mitigation program, including an achievable roadmap; and 3) the design and delivery of a capacity building program intended for banks and financing institutions.

Under this mandate, Econoler carried out the following tasks:

• Assessed the landscape for financing climate change mitigation actions in Sri Lankan manufacturing industries: 

• Analyzed the financing of climate change mitigation in manufacturing from an economic and policy perspective and presented a mapping of current key and potential stakeholders for climate financing in Sri Lanka;

• Presented the findings from extensive stakeholder consultations conducted with policymakers, industry, and financing institutions, thereby identifying capacity building needs, barriers, risks, and success factors related to financing climate mitigation actions;

• Highlighted the approaches and mechanisms to be considered in the design of a financing strategy. 

• Developed a financing strategy and risk mitigation program, including an achievable roadmap:

• Defined the main strategy objectives in terms of facilitating and accelerating financing of investments in decarbonization technologies and measures in the Sri Lankan industrial sector. Job creation, skill development, regulatory compliance, and stakeholder engagement/collaboration were identified as additional objectives of the financing strategy; 

• Defined priority industries with the greatest energy savings potential as recipients of decarbonization financing among the priority industries defined in the country’s National Policy of Industrial Development, the Implementation Plan for the Nationally Determined Contribution under the Paris Agreement, and Sri Lanka’s Green Finance Taxonomy; 

• Outlined the relevance of key policies, strategies, and stakeholders in the country’s industrial sector for the implementation of the proposed industrial decarbonization financing strategy; 

• Presented international experience, along with financing mechanisms applied in industrial decarbonization, including relevant case studies, and highlighted the financing mechanisms suitable in the Sri Lankan context;

• Outlined an Action Plan for the implementation of the proposed strategy, highlighting the role of relevant stakeholders in the implementation process. 

• Designed and delivered a capacity building program to banks and financing institutions

• Econoler designed and delivered a training program management and operational level staff of local banks on the basis of the results of a capacity needs assessment; 

• The training program for management was focused on presenting: (i) Best international practices in financing industrial decarbonization; (ii) the current status of the sustainable finance market in Sri Lanka; (iii) the benefits of sustainable finance business development for local financial institutions. 

• The training program for operational level staff was delivered in two consecutive days for participants from different local banks and was focused on: (i) Identifying opportunities as well as designing and marketing financial products for low-carbon technologies; (ii) technical and contractual risks in climate financing; (iii) carbon finance; and (iv) discounted cash flow cost benefit analysis of investments, credit enhancements, and blended finance opportunities for climate finance. A group exercise was held on structuring an energy efficiency investment model to enable sustainability and sensitivity analysis. A technical guide on the group exercise was provided to training participants.

The services of Econoler enabled Sri Lanka to unlock and mobilize funding for GHG mitigation actions in the industrial sector.